I’ve been involved in several direct sales organizations while in college, attempting to make some extra money on the side with companies like Avon and JuicePlus. Being a math nerd, I took meticulous records and every spreadsheet I made showed either a loss or barely breaking even. I eventually quit working on those businesses because of lack of time management and my inexperience running a business. However, working in direct sales gave me my first taste of running my own business and taught some real-life lessons I couldn’t get from my college textbooks.
Now that I’m self employed as a tax professional, I’ve been focusing for several years on having more than one stream of income, all related to financial education for families and small businesses. I’ve also become more involved in helping those individuals who need bookkeeping help with their direct sales or home-based businesses.
Choosing direct sales companies
Most people thinking about embarking on a direct sales or home-based business are searching for an additional source of income for their household that is convenient, flexible, and possibly lucrative. If direct sales is something that interests you, there are so many different types depending on the product or service that interests you. Preferably, you would want to operate under one that is a member of the Direct Sales Association or regulated by FINRA (financial services). If you make the decision to start a “side hustle”, be sure you understand the details of the compensation plan and the costs involved before you sign on the dotted line. Like any brick-and-mortar business, financial records are key to determining whether or not you are making a wise investment, and what your ROI (return on investment) will be.
Five basic points to consider
- What is the sign-up fee?
- What are the upfront marketing costs (business cards, website, training, etc.)?
- What are the ongoing marketing costs to effectively generate consistent sales (flyers, website, promotions, samples, etc)?
- Based on the compensation plan, how many sales will it take to make these dollars back (the breakeven point)?
- Can I make a decent wage without having to recruit? Are the products strong enough to stand on their own?
That last two-part question is one that separates the legitimate direct sales (sometimes called network marketing) companies from the sucker-magnet known as a pyramid scheme.
Tax issues
In effect, you are now self employed, which means there are new tax rules and law you should pay attention to. Detailed records of every expense and income transaction are essential as well and should be kept up to date. Sit down with a CPA (Certified Public Accountant) or an EA (Enrolled Agent) and they can help you determine how to be proactive about your business records and taxes.
Also, just because someone says “write everything off” doesn’t make it right. In the event of an IRS audit, the IRS can examine your records and decide if some of the expenses you wrote off should be disallowed. If they disallow part or all of your “business expenses”, you can owe a lot of money back in addition to penalties and interest. It’s always better to do things right the first time!
You can’t afford to just “sell something”. Managing your money strategically and leveraging those dollars will ensure that you reach your revenue goals while keeping you from owing a large tax bill at year’s end.
